Covered bond ETFs in the first quarter experienced their first net outflows since the first three months of 2012, according to data compiled by Markit, with analysts at the financial information services provider attributing the turnaround to the fall in yields on the back of QE.

Net outflows from covered bond ETFs (exchange traded funds) approached $193m (Eu182m) in the first quarter, after inflows every quarter since the first quarter of 2012, which peaked at over $400m in the second quarter of 2014. Markit’s data covers around 10 covered bond ETFs.

Neil Mehta, analyst at Markit, attributed the shift to the European Central Bank’s interventions, including its third covered bond purchase programme.

“With a guaranteed bidder in the market and the European quantitative easing in full swing, covered bond spreads have been on a steady decline since 2012,” he said. “The latest ECB intervention further tightened spreads and the asset class is now yielding less than 40bp over German Bunds, according to the iBoxx EUR Liquid Covered Index.

“With spreads hovering at five year lows, investors searching for yield appear to have lost their patience with the asset class.”

Mehta noted that covered bonds’ outperformance versus the highest quality corporate bonds – represented by the iBoxx Euro Corporates AAA index – has created a spread of 28bp between the two asset classes. Fellow Markit analyst Simon Colvin said that this has been reflected in broader bond ETF flows in the first quarter.

“The flows in recent quarters have been roughly evenly split between governments bonds and corporates, but the inflows have mostly been on the corporate side this quarter,” he said. “You can maybe read into that people are buying less governments due to the fall in yields.

“But covered bonds have been the only asset class on the ETF bond space that has seen a big outflow, and you can correlate that back to the trend in yields.”

Although the figures are low relative to the size of the asset class, the change of direction in flows is seen as significant. A covered bond analyst said the figures further undermined the ECB’s stance that CBPP3 and wider interventions are neither affecting the functioning of the covered bond market nor crowding out investors.